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I would caution with buying more if the price moves against you...

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11/05/19

19:22

Post #: 38521050
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Originally posted by Dazedandconfused: ↑

Hi espiaz

I have 2 suggestions...

For ASX 200 stocks

It is quite surprising but many ASX 200 move 15% [either way] over a 3 to 6 month period. To trade them a 3, 4, 5 position size is something to think about. The actual position is 3 units and the aim is to make 15% profit. But you are willing to protect the trade by buying 4 units if the trade goes 15% negative and if that trade goes 15% negative you protect with a 5 unit purchase.
e.g. Initial purchase = $3,000 [sell @ $3450]
$3,000 position loses 15% = $2550... buy $4,000. If position breaks even [i.e. reaches $7000 total, then sell $4,000 and retain $3,000]
$7,000 position loses 15% = $5950... buy $5,000. If position breaks even sell $9000 and retain $3,000.
Max capital outlay = $12,000 max risk = $1800

A recent example GXY. Nothing wrong with the stock but Blackrock Group recently sold down their significant holding. So assuming you got caught up in that and you bought @ $1.80 when they first started selling. $3,000 @ 1.80 [1665 shares]. GXY continued in a downtrend... first protection buy was $4,000 @ 1.53 [2614 shares] =4279 shares average price 1.63.5. The next trigger for a purchase is $1.39 [i.e. $7000 - 15% divided by 4279 shares]
The stock hit a low of $1.44 but recovered to $1.68. Closed @ $1.61 yesterday. Trading this way you would have sold $4000 @ 1.635 and now be holding 1834 shares and still in the trade.

This strategy relies very heavily on your FA skills. Won't save you if there is some real problem.

For spec stocks... Buy several small parcels and trade them independently.
I have lost a lot of money trading the speccies. My trouble is I fall in love with the stories and dream of mega returns. I have nearly always had to trade my way out of trouble. Not always successfully so. I recently took an 80% loss on FGO and that has hurt me. Currently I am deep in AIS and that has proved a problem as well.

I started buying AIS @ 20 cents. It is currently trading around 10 cents. As it happens I am very confident about AIS and intend to keep some for a long term hold but there have been a couple of adverse events. Drilling of a major prospect has suffered delays... AIS put in a bid to buy a mine about 10 times its MC... and throughout the time I have been holding there has been consistent selling by what appears to be a large holder.
My response has been to keep buying. I currently have 9 trading parcels and 1 parcel which is my free carry long term hold. My strategy is when an individual parcel hits 15% profit it becomes a candidate for selling. If momentum is positive I will sit on it and wait until that momentum fades. When I sell I take 15% cash profit and keep anything else as stock. Despite the fact the price has halved since my first purchase some parcels have achieved a profit and so I have a small free carry holding from those trades. I take a long timeline on things... for me AIS is a 2 to 3 year project.

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I would caution with buying more if the price moves against you no matter what maths you are using to protect a position.
Jesse Livermore who made and lost $ millions in the early 20th. century would say if a trade goes against you take your losses immediately and be grateful the loss was not a lot larger. Buy more in stages when the trade is moving positively and keep buying if the trend is going your way, and don't try to pick the very top or the bottom of a trading range. Many successful traders follow these principles.

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